Column Guido van der Horst – former member of A&F Investments

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Investing: a commonly mentioned topic for young adults. It is often presented as a fundamental part of maturing, a symbol of future orientation, and a pillar of financial awareness. Historically low interest rates make investing money even more interesting. However, a lot of people highlight the negative aspects: it is a risk, perhaps even a gamble, and requires in-depth knowledge of financial markets. Although these concerns are partly true, it is possible for everyone to earn money by investing rationally. A&F Investments helped me to do so.

I became an official member of A&F Investments in September 2019. I had been playing with the idea of buying shares for years. I also learned during MSc Finance that the risk of shares is compensated above average. Still, my contribution to the committee was my first investment. I felt a barrier before because of the many questions I had. For example, what was the best way to invest? Which products should I have? Which elements should I pay attention to before I put money into a company? I hoped to find answers at the committee meetings.

It soon became clear that I was not the only one with a lack of experience. Fortunately, there were plenty of members who made up for this lack: some had stock portfolios, others invested in crypto, and there were even members with real estate. I learned a lot during the first few months about the way they looked at a stock. For example: how expensive is the stock compared to the profit the company makes? Does the company have a competitive advantage and how is this advantage defended? My theoretical knowledge was also useful. For example, I knew how to compute a share price estimation in order to determine whether, in my opinion, the company was under- or overvalued.

“Investing is often about logical thinking and making rational estimations and decisions.”

Maybe things already got too technical. Some potential investors may not have a financial background and will not be familiar with all the terminology. Nevertheless, I would like to emphasize that this is certainly not necessary. Investing is often about logical thinking and making rational estimations and decisions. I like to illustrate this with a share pitch that I presented together with my team (consisting of Boris de Bie, Paul van Kempen, and Pim Meulenbroeks) in my last month at A&F Investment: the Homemade Cruise ETF. As you probably already know, COVID-19 has had a huge impact on the economy, including the financial markets. Where restaurants are often seen as the biggest victim, the cruise industry is perhaps even a better example. It has been prohibited for cruise ships to sail for months, which means that the companies do not generate any turnover. The result? Let’s take a look at the share prices of the three largest companies: Carnival Cruise Line, Royal Caribbean International, and Norwegian Cruise Line.

 Sometimes a picture says more than a thousand words. The cruise companies have taken an enormous hit due to the lack of turnover. Added to this is uncertainty: no one knows when they will be allowed to set sail again. This uncertainty is picked up by the mechanics of financial markets, which is often preceded by a psychological process. Some investors have sold their shares out of fear of bankruptcy. This created more supply in shares, causing prices to drop. These falling prices also gave other investors reason to sell, which can be seen as abandoning a sinking ship. The result: bottom prices.

“Bottom prices” is a dangerous choice of words though, as it usually suggests that something is a bargain. In equities, there are theoretically no bargains (also called the “No Free Lunch Theorem”). Low prices reflect skepticism in the company and its future cash flows. The low prices simply mean that the market expects the cruise industry to make much less money in the coming years, which is not entirely strange given the pandemic. Nevertheless, skepticism can also be exaggerated, with investors almost panicking and selling their shares. In troubled times, it is extremely important to look at the companies as rationally as possible. For our pitch, we therefore asked ourselves:

How big is the chance that the cruise industry, a centuries-old industry, will go bankrupt?

Of course, it is possible for an individual cruise company to go bankrupt, but the entire market is more unlikely. For this reason, we thought it would be a good idea to buy shares in the aforementioned companies that are also market leaders. We assumed that over the long term the shares would rise back to their average (also known as a “mean reversion” strategy). There will eventually be a time when cruise ships will be able to sail again and generate turnover. As soon as this happens, the shares will rise from which we will benefit from this. By spreading the investment over multiple companies, we could even make a profit if one of the companies went bankrupt. We were convinced to invest in the cruise lines.

We divided the work and researched the general company information, services, relevant news, the market and industry, the financial data, and the value of the stock. After putting everything into a nice PowerPoint presentation, we were ready to share the idea with our fellow committee members. It is quite a task to convince the group: at least 67% of the members have to vote in favor in order to actually proceed with the investment. After some critical questions, the final result came in: 87% in favor! In this way, our idea became reality and the committee joined the cruise companies for more than € 400. Mission accomplished!

The great thing about A&F Investments is the influence to help determine which shares to invest in. By pitching and voting rationally you can increase the initial investment of yourself and your fellow members. They are also a good reason to become a member. In addition to the knowledge and experience they bring, the meetings are pleasantly concluded in Café Het Dorstige Hert. My time at A&F Investments has brought me knowledge, experience, and a lot of fun. I, therefore, advise everyone with an interest in investing to become a member!